Russia and the Arms Trade
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4. Economic dimensions of Soviet and Russian arms exports Ian Anthony I. Introduction This chapter examines the economic dimensions of Soviet (and now Russian) arms transfers. From the discussion in chapter 3, it is clear that the primary determinants of Soviet arms transfer decisions were political and strategic rather than economic considerations. However, it is also clear from chapter 3 that the Soviet Union was not indifferent to economic returns from the arms trade. Since the dissolution of the Soviet Union the defence industry has been plunged into a deep, at times seemingly existential, crisis which is described in more detail in chapter 8. Under these conditions it is widely believed that economic motivations have become more important as a causal explanation of Russian arms export behaviour. However, many questions remain unanswered about the economic dimensions of Soviet and now Russian arms transfers. Differences of view about the historical importance of economic factors in Soviet arms export behaviour are reflected among the Russian authors who have contributed to this book. For example, in chapter 5 Sergey Kortunov writes: ‘for decades the Soviet military–industrial complex received guaranteed payments from the government for arms manufactured for export. A significant portion of this military equipment was either sold at concessional rates to foreign countries or, on occasion, given away’. This would suggest that Soviet arms transfers may have represented a net loss to the economy. In chapter 3 Yuriy Kirshin writes that ‘the prices for transfers which could bring political benefit to the Soviet Union were reduced. However, this was compensated for by prices charged to partners which were not considered so important’. Kirshin suggests that the overall economic impact of Soviet arms exports was either neutral or made a net contribution to Soviet finances. At the level of manufacturing enterprises it is also unclear how far Soviet and now Russian exports were and are beneficial to producers and how far revenues were or are retained by the state, either within the state trading companies or within the responsible ministries. In chapter 8 Elena Denezhkina writes that given a choice some enterprises in St Petersburg prefer foreign sales over sales to the Russian Government, which has become known as an unreliable customer. In chapter 11 Alexander Sergounin reports on the disappointment of enterprise managers in Nizhniy Novgorod that success in winning orders in China has produced such limited financial benefits for their enterprises. 72 RUSSIA AND THE ARMS TRADE Table 4.1. Official estimates of the value of arms exports, 1988–94 Figures are in current US $b. 1988 1989 1990 1991 1992 1993 1994 State Committee 12.00 . 6.05 . 4.00 2.15 2.80 on Defence Industries . 4.00 . Ministry of Foreign . 7.10 3.00 0.61 0.54 . Economic Relations Oleg Davydov . 2.30 1.20 . Source: Després, L., ‘Financing the conversion of the military industrial complex in Russia: problems of data’, Communist Economies and Economic Transformation, vol. 7, no. 3 (1995), pp. 335–51. These different perspectives give rise to two general questions. Were arms exports profitable to the Soviet (and now Russian) economy? Did arms exports yield hard currency and, if so, how much? There is no single or simple answer to either question. However, this chapter attempts to shed some light on this aspect of arms transfers. II. Aggregate data on the value of arms exports Several sets of data try to capture the volume, value and pattern of Soviet and now Russian arms exports. However, none of them is truly satisfactory. During the final years of the Soviet Union officials began to make occasional statements about the value of Soviet arms exports. In 1991 I. S. Belousov, Chair of the Soviet Military–Industrial Commission (Voyenno-promyshlennaya komissiya, VPK), stated that the average annual value of the Soviet foreign trade in weapons was 11.7 billion transferable roubles in the period 1986–90.1 Between 1992 and 1994 Russian spokesmen made various statements, many of them contradictory, about the value of Soviet and Russian arms exports. This reflected the general confusion within industry and within the state app- aratus during these years. As explained in chapters 3 and 5, responsibility for the management of arms transfers was not centralized in one agency during this period, and cooperation and coordination between existing agencies were far from ideal. Between 1992 and 1994, according to correspondence between the author and the deputy chairman of the then State Committee on Defence Indus- tries (Goskomoboronprom), central industrial organizations found it impossible to collect information either from individual enterprises or from regional indus- trial associations.2 1 Quoted in Albrecht, U., The Soviet Armaments Industry (Harwood Academic Publishers: Chur, 1993), p. 290. 2 Author’s correspondence with G. G. Yanpolskiy, 2 Mar. 1994. Yanpolskiy cited both technical problems associated with economic changes (such as the high rate of inflation and finding a representative currency exchange rate) and the general difficulties of effecting plant-level transformation in the industrial sector as reasons for the difficulty in collecting usable statistics from enterprises and regional offices. ECONOMIC DIMENSIONS: USSR AND RUSSIA 73 Table 4.2. Export of military and civilian products from enterprises under the State Committee on Defence Industries, 1988–93 Figures are in current US $b. 1988 1989 1990 1991 1992 1993 Exports of military output 12.00 . 6.05 . 4.00 2.15 Exports of civilian output . 2.00 . 0.61 0.54 Source: Després, L., ‘Financing the conversion of the military industrial complex in Russia: problems of data’, Communist Economies and Economic Transformation, vol. 7, no. 3 (1995), pp. 335–51. Table 4.1 illustrates the range of official data for the late Soviet and early Russian period. In some years widely differing estimates were produced by the same agency. In 1990 the Ministry of Foreign Economic Relations (MFER) released both $7.1 billion and $1.55 billion as values for arms exports, while in 1994 the State Committee on Defence Industries offered both $2.8 billion and $4 billion.3 To add to the confusion, the Minister for Foreign Economic Rela- tions, Oleg Davydov, released additional estimates in 1994 for the years 1992 and 1993.4 In 1994 the State Committee on Defence Industries released data on the value of exports from enterprises falling under its umbrella (see table 4.2). For some years these data were divided into the value of military items and the value of sales of civilian items and were published in US dollars. In 1996 aggregated data on the value of arms exports covering the period 1985–96 were presented for the first time in public by the state trading company Rosvooruzhenie. These data are presented in figure 4.1 and suggest that the annual value of Soviet arms exports was in the region of $20 billion during the second half of the 1980s—close to the values estimated by Western government agencies such as the US Arms Control and Disarmament Agency (ACDA). For comparative purposes, figure 4.2 shows the value of Soviet arms exports as estimated by ACDA for a similar period. The similarity between the time series is surprising given all that has been published about the inadequacies of Soviet statistics. In the context of foreign trade, dollar-denominated Soviet statistics are said to be of limited value because agreements were denominated in foreign trade or ‘convertible’ roubles which were converted into dollars at an official exchange rate which was meaningless.5 The process by which ACDA estimated the constant dollar value of arms exports from the Soviet Union remains somewhat obscure. It publishes esti- mates of the value of goods delivered in a calendar year which it receives from 3 The most likely explanation of the differences is that MFER data are based on the value of licences issued while the State Committee data are based on reporting by enterprises. 4 International Defense Review, May 1994, p. 54. 5 Information provided in author’s correspondence with Prof. Laure Després, University of Nantes, 27 Feb. 1997. See also Tabata, S., ‘The anatomy of Russian foreign trade statistics’, Post-Soviet Geography, vol. 35, no. 8 (1994). 74 RUSSIA AND THE ARMS TRADE 25 20 15 10 US$ billion 5 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Figure 4.1. Trends in Soviet/Russian arms exports according to Rosvooruzhenie, 1985–96 Source: Tarasova, O., [Rosvooruzhenie calls for unity], Segodnya, 1 Nov. 1996 (in Russian). other US government agencies. These estimates are already denominated in US dollars when ACDA receives them and are then deflated using a gross national product (GNP) index. During the cold war most dollar estimates of Soviet arms exports were gener- ated in Western government agencies and research institutes using volume indexes rather than estimates of the value of arms sales. However, there were also efforts to identify arms exports in Soviet foreign trade statistics. These estimates produced dollar values very different from those contained in the data released by Rosvooruzhenie. These data were estimated by eliminating from Soviet foreign trade statistics all categories which were clearly non-military and assuming that most of the remaining exports were for military end-users. The resulting data were con- verted from roubles into dollars using the prevailing official exchange rate. Comparing the value for 1980 contained in table 4.3 ($5.6 current billion) with the value for 1980 given by ACDA ($8.8 billion), and allowing for the fact that the data in table 4.3 exclude trade within the WTO, there appears to be rough comparability. According to residual foreign trade data the average annual value of Soviet arms exports to developing countries was $3.2 billion (in current dollars) between 1971 and 1980.